I refinanced an existing mortgage in July 2020. TurboTax prompted me to combine the Box 1 mortgage interest from both 1098 Forms in the worksheet for the loan I paid off. No problem there. However, TurboTax also prompted me to enter the Box 2 Outstanding Mortgage Principal for the paid-off loan (with a 1/1/20 Box 2 balance of $730,000 (rounded)), plus the payoff amount at closing ($720,000). For the refinanced loan, I entered the new mortgage Box 2 amount ($625,000 at origination) and the 12/31/20 balance ($615,000). The supporting loan worksheet appears to assume both loans were outstanding throughout 2020, calculating an average 2020 mortgage balance of $725,000 + $620,000 = 1,345,000. Since the IRS disallows interest deductions on loans over $750,000, the software limits my interest deduction to $750,000/1,345,000 = 56% of the actual interest I paid. What's the work-around for this??? Leaving Box 2 blank gives an error.
Combining the two forms is correct in order to keep TurboTax from adding the amount of debt together and limiting the mortgage deduction allowed, you will combine the three 1098's.
- Add together the amounts in Box 1 and enter the total as mortgage interest
- Add Together the amounts in Box 5 and enter the total as Mortgage Insurance Premiums
- Add the property tax paid from each form and enter it in the Property (real estate) taxes box
- Use the loan's original 1098 form to enter the amounts in Boxes 2, 3, 7, and 11
Thanks Mary - that appears to work.
Note that I needed to add a second 1098 for the refinance loan to do the 30-year origination point amortization. I entered the Origination Date in Box 3 and the ordination point in the following screens. I did not enter the new loan balance of $625,000 in Box 2, which creates a worksheet error during final error check, but doesn't appear to create an error that shows up in the final filed return.